The number of people who own homes is set to fall by almost two million by the middle of the next decade, leaving ever more people with limited assets and dependent on the state in later life, a major new study has found.

The grim outlook for aspiring home-owners – and the alarming consequences for government – are spelt out in a report on home ownership to be published this week by the Smith Institute, the left-leaning thinktank.

The study finds that if home ownership stays at 67.4% until 2025, there would be 17.4 million households in owner occupation. But if the trend of falling ownership continues, the level will fall to 60%, leaving just 15.5 million households in owner-occupation.

Paul Hackett, the institute's director, says that the house price bubble followed by the banking crisis has left the market out of reach of many would-be owners. "There is every reason to believe that home ownership levels will continue to decline and the private rented sector continue to grow. An increasingly large proportion of households will in effect be excluded from the benefits (and risks) of home ownership... wealth will be painstakingly acquired through personal saving."

The study shows that the number of loans for house purchases more than halved between 2007 and 2010, with people with chequered credit histories or low and insecure incomes being particularly hard hit. The availability of mortgage finance is "most unlikely" to return to the levels of the years before 2007, for a range of reasons – including changes in consumer regulation and more stringent rules for lenders.

The report says the government will have to look at the loss of income from stamp duty and other property-related tax revenues. "It may even be that the coalition will wish to consider some tax concessions along the lines of mortgage interest tax relief [Miras, abolished for principal residences in 2000] to encourage access to home ownership," the report says.